Trimming the fat
How lean should your project management team (PMT) be?
Recent research by the Performance Forum, a joint industry project managed by Turner & Townsend, has highlighted that in the last two years, the industry trend for PMT costs has risen by 20 percent. Their outlook shows that this trend is likely to continue upwards, driven by more complex projects in deeper water in less mature regions of the world.
What, how many, who, where and why?
Our analysis has shown that the most important driver of PMT spend is the type of facility being installed, followed by the number of facilities and who is the owner (operator type).
What? Distinct differences are seen between PMT spend by facility type. The highest PMT costs are seen for complex projects such as deepwater, offshore floating facilities. Fixed structures and those onshore should require less supervision.
How many? When a project requires more than one facility, the PMT costs rise significantly more, not just due to additional time for each facility, but as a result of the interactions between them.
Who? The percentage PMT costs of majors are about three percentage points higher than the percentage PMT costs for non-majors. Typically majors have more PMT full time equivalent (FTE) personnel than mid-tiers and independents.
Where? Project location impacts on PMT cost in a number of ways. For example, some regions may require a larger number of ex-patriate PMT at higher cost, or have local content requirements that impact upon the location and number of engineering and fabrication sites, which can increase the supervision required. The terrain or remoteness can affect the type and the number of facilities.
Why? Most projects have multiple contracting strategies, again affected by location, number of interfaces, project size/complexity and who the operator is. The strategy adopted will impact on the level of supervision undertaken by the operator PMT and how much is managed by the various function contractors and the interfaces required between them. Experience and competence of the operator and contractor(s) project management personnel is a major factor to consider and difficult to measure.
Five benefits of using external support
- Lower cost than full time operator staff
- Brings additional experience, systems and tools from outside of the operator’s organization
- External resources can be added or demobilized quickly and efficiently
- Operators keep permanent staff numbers at a lower and more constant level
- Managed services remove the need for operator supervision of the project services team
Spending more on PMT for project success
Lower spend on PMT may not equate to lower overall project cost. The successful delivery of a capital project should focus not only on the execution phase, but also include the first few years of operations. Increased spend on PMT, in particular on tighter project controls, can help to ensure that first hydrocarbons are achieved on time with less need for modifications or maintenance after start-up. Having experienced contracts and procurement personnel in the PMT can prevent costly change orders and dispute resolution, while managing risk.
The competing pressures of reducing headcount while maintaining the right experience and size of the PMT is a challenge that is here to stay for the oil and gas industry. The very nature of project-based work will ultimately shift the structure of the PMT from being full time staff to external project management support services, where an entire managed team can be brought on board for the project duration and then demobilized efficiently and at lower cost to the operator upon completion or earlier if the project stalls. Moving project management skills, experience, systems and tools from the operator to a consultant may be a necessary strategy for successful project delivery while facing lower oil price and economic uncertainty.